401(k) to IRA rollover and RMD
Taxpayer had 401(k) at 12/31/16 and was still working for employer. In 2017 turned 70 1/2 and retired from employment and rolled the 401(k) to an IRA. Is an RMD required as there was no IRA balance at 1/1/17 OR is 401(k) balance at 1/1/17 used to compute RMD for 2017 distribution (or April 2018)?
Permalink Submitted by Alan - IRA critic on Mon, 2017-10-09 23:51
This question comes up frequently. When a 401k is rolled over to an IRA in a 401k RMD distribution year, if the 401k RMD had not been previously distributed, a portion of the direct rollover is deemed to apply to the RMD. The 401k RMD has therefore been satisfied, but it was not eligible for rollover because it was an RMD. Therefore, there is an excess contribution to the IRA which must be corrected in the usual manner for correcting excess IRA contributions. Again, there is no IRA RMD for 2017, just a 401k RMD that was completed when the direct rollover was done. Withdrawing the excess contribution from the IRA will result in the same amount distributed to the taxpayer plus/minus the earnings on the IRA excess contribution. The IRA RMD for 2018 will be based on the actual IRA value on 12/31/2017. The only excuse the employer has for including the 401k RMD for 2017 in the rollover would be if the taxpayer had not yet retired when the rollover was made not told the employer that they were going to retire in 2017.